Expatriate employees in Indonesia could get a tax break from Indonesia’s proposed Omnibus Law. One proposal within the law, whose aim is to simplify regulations and boost foreign investment in Indonesia, is to ease tax requirements for expatriates and overseas Indonesians on their income earned outside the country’s borders.
While the law may not directly impact employee benefits in Indonesia per se, it will likely improve taxation for some foreign workers, and make it easier for them to get a work permit.
Key taxation elements of the proposed law
- Foreigners who work in Indonesia for more than 183 days a year will be taxed only on the income they earn in Indonesia.
- Indonesians working abroad for more than 183 days will be exempt from paying income tax in Indonesia under certain conditions. Examples include their domiciles, place of main activity, and tax subject status.
- The prevailing income tax law only regulates that individuals, including foreigners, who have resided in Indonesia for more than 183 days within a 12-month period, or resided in Indonesia for a full tax year, are considered a domestic taxpayer. Otherwise, the individual is considered a foreign taxpayer and is not obliged to pay income tax in Indonesia.
Changes to work permits
Work permits in Indonesia are also likely to see some changes. According to the Jakarta Post, “Expatriates will be allowed to work in more functions than only diplomatic affairs, as stipulated in Article 42 of the Manpower Law. In the omnibus bill, foreign workers will be allowed to work in Indonesia without a permit in positions that range from members of boards of directors and commissioners, and diplomatic or consular staff, to researchers and emergency engineers. Foreign workers in start-ups will also be exempted from work-permit requirements.”
Discussions about the Omnibus Law continues between Indonesia’s President and House of Representatives. However, the pandemic may ultimately delay the law’s progress.